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A Close Up of S & P 500 Index

A Close Up of S & P 500 Index
March 12
21:03 2012

The Chart

Here is a 15 minute chart snapshot of E-mini S&P 500 Index futures (Symbol: ES) ranging from Monday, February 6th, 2012 to Thursday, February 9th, 2012. This chart includes several technical indicators:
• 8 period simple moving average (blue line)
• 20 period simple moving average (red line)
• 200 period simple moving average (green line)
• Bollinger Bands (purple lines)
• Relative Strength Index (RSI) (dotted line)
• Volume (dark blue bars)

The Walkthrough

In this chart focus we will learn about the purpose and use of the 200 period simple moving average (SMA). This indicator calculates the average price of the last 200 candles. The 200 period SMA is widely used as a measure of support or resistance, and it can be a strong or weak signal depending on the time frame. On smaller time frames, such as the 5 minute or 15 minute chart, the 200 period SMA can simply be a point of mild support or resistance, while bigger time frames, such as the 4 hour or daily chart, it can mean a crucial turn or strong buying or selling opportunity. With these principals in mind lets now take a further look at the chart of the E-mini S&P 500 Index futures.

It is important to notice that the 200 period SMA was broken several times but held as an area of support as the market traded higher. When breaks of the 200 period SMA occur, the trader should exercise patience. These are moments of “wait and see” and traders should use extreme caution as the market can be very unpredictable. Looking further at the chart of the E-mini S&P 500 Index, the market is trading in a range that it cannot seem to break above, yet the 200 period SMA holds as support from the market falling and beginning a down trend. If the 200 period SMA continues to hold, the market may break out of the range and begin to trade higher.

The Lesson

In markets like these the best thing to do is sit on your hands until a better buying or selling opportunity arrives as this type of market contains high risk due to lack of a clear direction. When one assesses any chart the trader should always look for major support or resistance at 200 period SMA, and clear market direction (either an uptrend or down trend). Other key things to notice would be the 8 and the 20 period moving averages. Notice that other than the 200 period SMA, the other moving averages have gone sideways indicating that the market is choppy.

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